Our annual ranking of the top 100 residential construction suppliers in the country by pro sales and the next 25 companies on the bubble reveal that a lot of changes are sweeping the industry. The top 10 dealers and distributors are consolidating and reaching ever greater multi-billion-dollar sales plateaus, while the ranks of strong regional independents of pro dealer tradition are starting to thin and a new breed of smaller independent firms is growing to fill the voids left by acquisition. As the residential construction market begins to soften and The Home Depot makes bold moves into the pro dealer space, the independents, the remaining regional powerhouses, and the consolidating titans at the top are leveraging their value-added services, fine-tuning their business focuses, and continuing to compete for customer loyalty.

For the first time in years, the PROSALES 100 is seeing some big changes as pro dealer independents that traditionally rank throughout the list of the nation's largest construction suppliers are beginning to vanish. In 2005, Kennesaw, Ga.–based Leeds Building Products, Winterhaven, Fla.–based Adams Building Materials, Suwanee, Ga.–based Williams Bros., and Indianapolis-based Carter Lee Lumber, among others, succumbed to a wave of industry consolidation that seemingly grows more powerful with each passing month. Already, even this year's PROSALES 100—which represents companies doing business throughout the course of 2005—will hardly resemble next year's list, with Redmond, Wash.–based Lanoga Corp. and South Plainfield, N.J.–based The Strober Organization merging into a single Pro-Build entity and even more dyed-in-the-wool independents like Yorkville, Ill.–based F.E. Wheaton and Saginaw, Mich.–based Wolohan Lumber joining the fold of the larger, consolidating dealers in the industry.

To the dealers at the top, consolidation is part of a growth strategy leading to national market coverage, increased scale, and the possibility of matching up with the country's largest high-volume production builders. And while remaining independents in the middle market don't begrudge their need for growth, they bemoan the drain of locality, entrepreneurship, and relationship building that has long been the heart and soul of residential construction supply. Regardless of their size or focus, virtually all dealers and specialty distributors agree that the character and composition of the industry is on the precipice of permanent change.

"The independents are becoming extinct," says Harold West, president of New Castle, Del.–based William Young Lumber (No. 100). "We're being gobbled up by these guys until ultimately everyone in the top 100 is simply going to be part of one of the companies in the top five." According to West, acquisitive companies are contacting his fourth-generation, three-yard operation on a "daily" basis. "It would be very easy to take the EBITDA multiple and put a lot of money in our pocket and retire happily ever after," he says. "But we're never selling out to these guys."

To smaller independents like Young, the influx of large acquisitive chains is inexorably changing the competitive conditions in the local marketplace. When asked about expansion plans, 12 percent of the 2006 PROSALES 100 responded that they intended to expand nationally over the next five years, and 47 percent responded they will attempt to expand into a new geographic region. "We certainly don't have any intention of backing off or backing down," says Fenton Hord, CEO of Raleigh, N.C.–based Stock Building Supply, which once again lands in the No. 1 spot. "We think we have a pretty good model and a good footprint, and we're going to expand that. I think some of the other guys have a pretty good model, too, and we'll meet at the post and see who comes away as the winner."

Stock has been keeping the pace against other acquisitive companies with purchases that add not only scale but also skill to the company's product and service mix. In particular, the March 9, 2006, acquisition of Homestead, Fla.–based K&A Lumber (No. 56) brings 2005's fastest-growing top 100 lumberyard into the Stock family. Riding an extremely hot Florida housing market, K&A boosted sales 48.3 percent to $129 million before selling to Stock (see "The 25 Fastest-Growing Companies in the PROSALES 100," page 81).

With K&A absent in 2006 via acquisition, San Francisco–based BMHC (No. 3) will be left to defend its position at the top of the growth leaders' board by leveraging what has thus far been a successful mix of construction services and traditional material distribution. Powered by significant growth from both its BMC Construction services division and its BMC West distribution division, in 2005 BMHC combined acquisitions of large framing contractors and construction service providers with solid organic growth to push overall sales up 39.3 percent to $2.9 billion.

While dealer acquisitions of contractors don't directly affect supplier consolidation, dealers are still forced to readjust when BMHC purchases one of their customers. "Consolidation is changing the industry rapidly," attests Milton Johnson, president of Home Lumber (No. 80) in San Bernardino, Calif. "We have framing contractors that are being purchased by BMHC, and of course they'll look first to their own distribution channels. We haven't seen too much of direct dealer-to-dealer acquisitions in our market yet, but it is on its way; it is going to happen." A true testament to the current nature of the industry, soon after our conversation that prediction hit close to home when Stock Building Supply announced April 4 it will acquire Home Lumber (see related).

Bucking the M&A trend is Eighty Four, Pa.–based 84 Lumber (No. 2), which has been expanding organically at a rate approximately equal to its colleagues at the top of the rankings. Even as 84 begins to pull out of rural markets (see related story, page 34), the company still plans to add to its current unit count of 529 this year and should again lead the industry in number of locations. Even the 468 aggregate unit count of the now combined Lanoga (No. 5) and Strober (No. 8), which includes Lanoga's recent acquisitions of Wolohan Lumber (No. 51) and F.E. Wheaton (No. 66), likely won't surpass 84 Lumber's geographic growth without an additional large-scale acquisition.

"[Organic growth] is still our MO," says 84 COO Bill Myrick. "So you'll see us building lots of stores in the South, in the West, in Texas, predominantly anywhere where there are lots of housing starts where we do not have stores today. Our competitors have a plan that involves acquiring others, and we seem to have a plan that works for us in terms of building our own stores. But as things get competitive, whatever you do, whether you acquire or whether you do green field and build your own stores, whatever it is, you just have to be good at it."

Download 2006 ProSales 100 List (PDF)